Understanding E-procurement: Qualitative Case
Studies
Vinit Parida1; Kittipong Sophonthummapharn2 ; Upasana Parida3
1
Luleå University of Technology, vinit.parida@ltu.se
2
Umeå University, Kittipong.s@usbe.umu.se
3
Luleå University of Technology, upapar-3@student.ltu.se
ABSTRACT
E-procurement is constantly receiving attention from
industries, business and government agencies. Analysts
believe that utilization of e-procurement can lead to
enormous cost saving and efficiency in procurement
process. E-procurement also enlarges customer base,
broadens the search for raw materials to lower its
production cost. Though, it has benefited the global
business tremendously, its expected growth rate has been
moving downwards. While E-procurement can be used for
the purchase of indirect or direct materials, the risks
associated with the e-procurement has been holding the
companies from adopting it. The purpose of this paper is to
understand the e-procurement process by focusing on
benefits, risks, practices and strategies of e-procurement
and its emerging usages in the current business to business
(B2B) environment. A qualitative method was used for the
case studies in which two companies each from India and
Sweden were studied and analysed.
The results showed that cost benefit was the main driver
for companies to implement e-procurement. Other benefits
included were transparency and visibility across process,
better internal and external relations and streamlined
buying process. The problems of implementation and
integration of existing infrastructure and security and
control risks were holding back companies from wide
usage of e-procurement. But most of all, lack of managerial
commitment hinders the adoption process. Company’s
needs were the deciding factor for the kind of approach
they will follow regarding the adoption of e-procurement
and emergence of a new approach. This paper compares the
works of different authors in the field of e-procurement and
its implications for the B2B.
Keywords — e-procurement, ICT, e-commerce, case study
I. INTRODUCTION
In today’s dynamic global business competition scenario,
web based technology is no longer an after thought, rather
it is a must. It is vital for companies to provide its
customers with cost effective total solution and life- cycle
costs for sustainable value. With emergence of Internet, and
information and communication technology (ICT)
applications, the companies are strained to shift their
operation from traditional way to the virtual e-business, eprocurement and e-supply chain philosophy [1]. Ecommerce is seen as the new tool that will revolutionize
business as we know it today. Although, the business to
customers (B2C) has received attention from the rise of
companies like Amazon.com, and eBay Inc, still the bulk of
e-commerce remains to be the B2B [2] [3]. IT publications
and business analysts alike have been full of the promises
of B2B e-commerce. At the center of all this hype was the
possibility of what e-procurement could offer a company as
means for companies to control costs [4]. Does eprocurement really save cost and time for companies? Well
this question can clearly be understood by an example from
[5], “one might not think it would matter to an 8.5 billion
company, how it buys its pencils. But, when they have
upward of 60,000 employees in 100 countries purchasing
those pencils, not at mention desk, computers, and spare
parts for oil fields equipment, the time and cost can easily
mount. Rather than trying to centralize such purchase into
some worldwide purchasing office, Schlumberger and other
big companies have chosen or are choosing to take
advantage of the burdening market for e-procurement”.
Many authors have defined e-procurement in there own
wordings. Some interesting definitions are stated below:
A technology designed to facilitate the acquisition of
goods by commercial or government organization over
internet [6].
E-procurement is a technology solution that facilities
corporate buying using the internet. It has the power to
transform the purchasing process because it pervades all of
the steps identified by the supply manger [7].
The terms procurement and purchasing has been quite
often mixed with each other or used interchangeably.
However, they differ significantly in their scope.
Purchasing refers to buying materials and all activities
associated with the buying process. Electronic purchasing
addresses only one relatively minor aspect of the
procurement problems faced by companies. Procurement
on the other hand, is broadly defined to include a
company’s requisitioning, purchasing, transportation,
warehousing, and in-bound receiving processes. Recent
procurement strategies focus on restructuring the entire
order-to-delivery process rather than on specific tasks
within the process [8]. Thus, e-procurement is not just an
addition of technological aspect to traditional procurement.
E-procurement system in essence, mirror the procurement
process through the provision of two distinct, but connected
infrastructures, internal processing (corporate intranet) and
external communication processing (internet based
platforms) [9]. The critical difference is that these systems
allow individual employees to order goods directly from
their personal computers through the web on real-time.
Requests and orders are channeled through various forms
of hubs or database. It also allows individual employees to
search for items, checks availability, place and track orders
and initiate payment of delivery [10]. E-procurement had
been the subject of a great deal of research, but again this
has tended to focus on the development of interorganizational electronic networks. Inefficient and
maverick buying habits, redundant business processes and
the absence are symptoms of poor procurement practices
[11]. The world of e-procurement is changing at a dizzying
pace and B2B procurement is rapidly becoming the most
efficient way to conduct all these modes of business.
E-procurement’s benefits fall into two major categories:
efficiency and effectiveness. E-procurement’s efficiency
benefits include lower procurement costs, faster cycle
times, reduce maverick or unauthorized buying well
organized reporting information, and tighter integration of
the procurement functions with key back-office systems.
The benefits of E-procurement effectiveness include
increased control over the supply chain, proactive
management of the key data, and higher-quality purchasing
decision within organizations [8]. Although, the benefits of
e-procurement are frequently discussed, it has its share of
risks. In addition to the technology risks, there are risks
associated with the integration of these technologies with
existing information systems, with the business models that
these technologies impose on supplier-customer relations
and with the security and control mechanisms required to
insure their appropriate use [12].
The purpose of this paper, is to understand the eprocurement process by focusing on benefits, risks,
practices and strategies of e-procurement and its emerging
usages in the current business to business (B2B)
environment.
The article is divided into five parts including
introduction which is section 1. In section 2, the literature
review: previous research conducted within the areas and
the overall purpose is given, which will serve as theory for
the study. Section 3 includes the methodology and the next
section will handle the case studies, which consist of
findings from Indian and Swedish companies and final
section includes conclusions and implication for future
research.
II. THEORY
A. Benefits with E-procurement
Normally, cost savings are the main motivator for
companies to implement e-procurement solutions. As cost
per transaction using e-procurement can be reduced by 65%
compared to traditional procurement transaction [12]. Cost
reduction and negotiation are the reason for transaction
costs fall so precipitously with e-procurement. Reductions
in labour costs in the purchasing process, increase in
purchase volume, leads to better price from supplier and
better negotiation i.e. suppliers are ready to reduced the
price as they get the assurance of transaction from the
buying company. The effect of e-procurement on interorganization enhances the benefits of e-procurement within
an organization. Companies using e-procurement have
reported savings up to 42% in purchasing transaction cost
associated with less paperwork, which translates into fewer
mistakes and more efficient purchasing process. In a labour
intensive, paper-based purchasing process, transaction costs
can range from $70 to $300 per purchase order. For
example, GE (General Electronic) saw those costs drop to
30%. Other firms have experienced even greater reductions
[7]. Cost reduction is also influenced by control over
maverick spending i.e. purchase of goods from suppliers
with which the organization does not have formal
relationships.
E-procurement users also report a reduction in the
number of suppliers, associated cost benefits of lower
managerial complexity, lower prices and a headcount
reduction in the purchasing process. Cutting those cycle
times helps in streamlining the process and has a
significant impact on the revenue generation potential for
the firms because products get to market faster, allowing
the firm to position it to capture market share from a first to
market position [7]. Different authors have elaborated on
the benefits that accrue from adopting e-procurement
technologies. These benefits are expected to accelerate the
rate of adoption of these technologies once the uncertainties
that remain around e-procurement are reduced to levels that
encourage significant resource commitments leading
towards higher process efficiency [12]. E-procurement
solutions do not always require additional technology,
dedicated personnel or staffing resources. Rather, existing
technology infrastructure, including equipment and
computers with Internet connectivity (which may already
be in place) can be used [6]. E-procurement and related
technologies promise major improvements in the
management of procurement. These improvements are
achieved by sliming the supply chain and by acting on (or
perhaps creating) markets at either end of that chain. Also,
buyers and sellers are able to share information in real
time to build specification that add value to resulting
product and build strong relations.
The use of e-procurement is known to have implications
for information asymmetries or impact on interorganizational relationships, in particular for search and
monitoring costs. Alternative explanations for the benefits
of e-procurement arise from the resource based perspective
through which the resources of the firm may be leveraged
to achieve competitive advantage with electronic commerce
presenting opportunities to enhance firm resources [13]
[14]. Finally, there is also impact on firm’s asset base and
the inventory level can be significantly reduced. There are
no problems like stock outs, wrong product ordered faster
delivery, etc, and there is better inventory control. An
effective e-procurement strategy for example, extranets link
the system of buyers and suppliers over the Internet
facilitate real time exchange of the information in the
buyer’s production schedule and develops capabilities that
allow a degree of flexibility with suppliers [7]. Various
studies explicitly done on the benefits through
implementation of e-procurement system are briefly
explained in Table 1.
B. Risks associated with E-procurement
As mentioned above, e-procurement has lot of benefits but
still its expected growth rate has been revised downwards.
Recent market observation indicated that the adoption of eprocurement technology into the business mainstream is
occurring in a much slower rate than expected. One reason
is the implicit association made by investors between eprocurement technologies and the B2C models responsible
for the internet bubble bust. More often, the slow down has
been associated with technology-related issues [12].
Internet-based e-procurement systems and B2B electronic
market solutions need to be compatible to the greatest
possible extent with the existing technologies, to have a
reasonable chance to be widely adopted in the marketplace
this leads to problems like investment cost [15]. A study by
the conference board (2000), pointed to the problem in the
implementation side and concludes that organization are
finding (e-procurement) implementation more complex,
expensive and time consuming than they originally
envisioned’ and that consultants have been ‘widely
criticized for overstating the business case of eprocurement’ [18]. Companies were jumping into the eprocurement bandwagon without fully understanding the
inter-organizational collaboration and network effects
underlying these technology models, the investment
required to move the right information from suppliers to
employees, and the complexities of integrating these
technologies with existing enterprise recourse planning
(ERP) system [19]. The analysis indicated that the slowerthan-predicted growth is not the consequences of a single
problem. Rather, e-procurement technologies are still in
there early stage of the traditional technology S-curve,
where alternative technology models are rapidly evolving
and users are still sorting out the winning model. Because,
a well-defined business process is still unavailable,
companies are using different strategies to approach these
technologies. The perceived risks that are holding back
companies from investing in e-procurement technologies
are numerous. These risks mentioned by [12] are:
• Internal business risks: Companies are uncertain
about having the appropriate resources to
successfully implement an e-procurement solution.
Implementing an e-procurement solution not only
requires that the system itself successfully
performs the purchasing process, but it integrates
with the existing information infrastructure
TABLE 1
MAIN BENEFITS IDENTIFIED BY DIFFERENT AUTHORS
Leonard and Cochran,2003 [16]
• Ability to implement “just in time” strategy
• Streamlining of supply chain by removal of
inefficient intermediaries
• Better access to information and transparency in
markets
• Removal of market barriers like time difference and
geography
De Boer et al,2002 [11]
• Cost saving directly related with production or
service delivery
• Cost reduction of non production goods and
services
• Reduced cost of operational purchasing activities
e.g. ordering, expediting and requisitioning
• Reduced cost of tactical procurement activities e.g.
formulating specification, selecting suppliers,
negotiating with suppliers, contracting, disposals
etc
• Reduced Cost of strategic procurement activities –
e.g., spend analysis, transaction analysis, market
analysis, planning, developing purchasing policies
etc
• Internal benefits arising from investments in
particular inter-organizational relationships
• The contribution of investments in particular interorganizational relationships to revenues
ITRG, 2002 [17]
• Process efficiencies amounting to annual savings.
• Ability to link into existing systems, such as ERP.
• Reductions seen in lead times within the procureto–pay cycle, in some cases by 50%.
• Self-invoicing on behalf of clients can add to the
bottom line.
• Month-end reconciliation can end the problem of
the wrong items being ordered or the wrong prices
bring offered as business process have been
streamlined and all was working off the same
catalog.
• The buyer is engaged in more strategic product
management, leading to better contracts being
negotiated.
• Maverick spending is reduced.
• Reduction in stock levels can lead to savings of
millions of dollars
Davila et al,2002 &Presutti, 2002 [12] [7]
• Cost savings
• Process efficiency
• Better information flow between buyers and
supplier
• Reduced Maverick spending
• Streamlined process
• Better inventory level
•
External business risks: E-procurement solutions
need not interact with internal information
•
•
systems, but also need to collaborate with external
constituencies; mainly customers and suppliers.
External constituencies need to develop internal
systems that facilitate the communication through
electronic means, an issue that demands
technology investments as well as incentives for
these
constituencies.
For
e-procurement
technologies to succeed, suppliers must be
accessible via the Internet and must provide
sufficient catalogue choices to satisfy the
requirements of their customers. Suppliers,
especially in low margin industries, may be
hesitant or even unable to meet such demands
without guarantees of future revenue streams.
Technology risks: Companies also fear the lack of
a widely accepted standard and a clear
understanding
of
which
e-procurement
technologies best suit the needs of each company.
The significance of this risk factor seems to
suggest the need for clear and open standards that
would facilitate inter-organization e-procurement
technologies. Without widely accepted standards
for coding, technical, and process specifications,
e-procurement technology adoption will be slow
and fail to deliver the benefits as excepted.
E-procurement process risks: Another set of risks
has to do with the security and control of the eprocurement process itself. Organizations must be
confident, for example, that unauthorized actions
will not disrupt production or other supply chain
activities when committing to e-procurement
technologies.
C. E-procurement practices, strategies and models
There are different practices, strategies and models
related to e-procurement implementation and it is essential
to understand them as they bring out practical aspects of eprocurement. The theories have been rather vague inrelation to these specific topics, but the authors have tried
to bring some insight.
E-procurement Practices:
In the procurement circle, the line is often drawn
between direct and indirect materials. Indirect materials
constitute what are typically referred to as maintenance,
repair, and operation (MRO) goods, where direct materials
are those that are closely linked to production or service
delivery. It is common to find direct purchases aimed at
external customers with largely unpredictable purchases
(based on the current need of the firm). They have a large
order size compared to indirect material that are aimed at
internal customers, the purchase are internal driven and
have a smaller order size. However, for direct purchases,
where a firm sends 80% of its total dollar for the total
number of purchase order is only 20% compared to indirect
purchases. The total dollar send is 20% but the total
number of purchase order is 80%, making it more desirable
[20]. The [21] have shown consistent growth in the
adoption of Web-based methods for indirect purchases.
Much of this is due to the fact that firms both in the
services and manufacturing sectors are increasingly making
routine purchase for operating and office supplies through
online sites, either independently or as part of hosted
catalogs. However, when the ISM/Forested results are
looked closely, it can be seen that the driving force behind
this overall shift to sourcing indirect goods and services via
Internet is the largest purchasing organizations. It must be
remembered that the exact breakdown on what is a direct
purchase and what is an indirect one varies even within
companies and even depending upon the timing and
circumstances of the purchase. Although purchases of
indirect goods may be often outpaced spend on direct
materials, acquisition of MRO goods has therefore not been
looked upon as a strategic issue [22].
E-procurement Strategies:
The E-procurement market is still evolving with the
development of technology and new models to serve the
needs of the market. There are various strategies that
companies adopt towards e-procurement technologies. The
majority (70%) are taking a “wait and see” approach
(strategy). These companies are either aware of the
developments, but not committing resources (37%) or
investing selectively until the best e-procurement model
can be identified (33%). These companies do not perceive
the current state of development merits shifting their
established procurement process to the e-world; never the
less, they are active in experiments and widespread. The
strategy reflects active experimentation but no sizeable
investment until the best E-procurement model is defined
[12].
A smaller set of companies (4%) adopting a more
passive strategy of observation without experimentation.
Their adequacy (and risk) will depend on how quickly
organisational learning can be absorbed without creating
the “absorptive capacities” that the wait and see companies
seem to be developing [12]. A moderate number of
organisations are taking aggressive strategy (27%), stating
that they are adopting e-procurement technology declaring
that they are ‘investing significantly to gain a competitive
lead (3%) or moving ‘fast into e-procurement solutions
(24%). This strategy however is defined as riskier in the
absence of any well defined solution and companies may
end up betting on the wrong technology [12].
According to the results from one study, one-third of all
respondents believe that at least 40% of their competitors
are implementing or have plans to implement an eprocurement strategy. Among organisations pursuing an
aggressive strategy, over 50% believe that their
competitors are doing the same [12].
E-procurement Models:
According to [23], e-procurement is the amalgamation of
sales and purchasing business models and calls for
differentiation based on application and functions. The first
application is the “buy-side procurement” which refers to
one organization using electronic systems to purchase
goods, such as office stationary, from contracted suppliers.
These suppliers are also using e-procurement systems for
management of all processes relating to purchase. This is
simply coalescing of the corporate procurement portals and
business to employees (B2E) applications. Also these
models are generally driven by the specific requirements of
the buying organizations than other models.
The second application is “sell-side procurement “. This
term is used to describe how one supplier sells to a number
of buying organizations using electronic systems such as,
using e-procurement systems and e-commerce technology.
This model is also referred to as “e-sales”. Seller side
procurement models are often used extensively in B2C
(business to consumers). Well designed seller side solution
is usually offering a higher level of customizations for each
buyer than their B2C retail counterparts. This type of model
attracts big suppliers firms that have a stronger position in
relationship with their buyers.
The third application is “e-marketplace and trading
hubs” which is a combination of industry consortium and
the trading exchanges. The marketplace model brings
together many different buying and selling organizations in
one trading community. The most popular e-marketplace
function is auction used for variety of product category.
This type of model often helps to increase collaboration
between companies in a single industry sector or providing
the opportunity of e-procurement to companies, who would
normally be too small to benefit [23].
D. Research problem and emerged frame of reference
Based on the above mentioned purpose of the study and
along with the thinking of [12], [7], [20], [23], we are able
to come up with some intriguing research questions, which
need further clarification.
(a) How can the benefits associated with
implementation of e-procurement in B2B
organizational setting be described in a specific
global context?
(b) How can the risks associated with adoption and
integration
of
e-procurement
in
B2B
organizational setting be described in a specific
global context?
(c) What e-procurement practices, strategies and
models adopted by organizations in B2B settings
in a specific global context?
To show the relation between three research question and
purpose of the study we developed a frame of reference
(Figure 1), which shows that benefits are the drivers for
companies to implement the e-procurement. Once a
decision is made regarding adoption of e-procurement it is
important to adopt these decisions related to practices,
strategies and models by companies. Risks are present
throughout the process both in the beginning and after the
implementation of e-procurement. Risks help the
organisation to identify the pit holes and prepared for the
problems that come with implementation of e-procurement.
And all these components interact together which takes
place within the e-procurement environment.
E-Procurement Environment
Benefits
Strategy
ƒ Cost savings
ƒ Process efficiencies
ƒ Better information flow
between company and
supplier
ƒ Reduced
maverick
spending.
ƒ Streamlined process
ƒ Better inventory level
ƒ Strategy
Wait and see approach
Passive approach
Aggressive approach
ƒ Practices
Direct material
Indirect material
ƒ Models
Buyer side
Seller side
Trading Hub
-
Risks
ƒ
ƒ
ƒ
ƒ
Internal business risks
External business risks
Technology risks
Process risks
Figure 1: Emerged frame of references
III. METHODOLOGY
The method used for gathering data to answer the above
stated research questions is an in-depth, qualitative multiple
case study approach. This kind of longitudinal approach is
recommended to the authors, who want to study new
technology related subjects in B2B context [24].
Qualitative study includes a great closeness to the
respondents or to the source that the data. It is characterized
by gathering abundant information and to investigate
several variables from a few numbers of entities. To make
use of the possibility to gather high quality data, the most
common way to do this is with the use of case study and
interviews, where no set answering alternatives are being
offered. The qualitative approach was found to be more
suitable for the purpose of this paper, as the purpose is to
gain better understanding of how e-procurement is used in
a B2B setting. For doing so, we need close contact with the
subject, instead of generalization. Finally, as the intention
of this paper is to describe, and to find complete and
detailed information, qualitative approach is the most
suitable method. Further, being descriptive helps us
fulfilling our intention to describe the area of research and
try to explain the data collected in order to find out the
differences and similarities with frame of reference. But we
are exploratory in our research and we also, begin to be
explanatory. We have stated a purpose of the study that
makes us exploratory.
For this study, we used multiple-case sampling, because
multiple cases could add confidence to findings. By
looking at a range of similar and contrasting cases, we can
understand the case finding, grounding it by specifying
how and where and, possible, why it carries on as it does
[25]. The sample selection used the criteria that companies
should have implemented an e-procurement solution or
helps to provide an e-procurement solution to other
companies. The reason for taking these two perspectives is
that, when a company is implementing e-procurement, it is
easy to get in-depth information. And when a company is
providing e-procurement solutions, it is easier to get wider
information about its customers (companies) and adoption
of e-procurement. These two perspectives are further
compared from Swedish and Indian companies’ views.
While selecting the e-procurement solution, providers
from Sweden and India, it was considered to study an
established company (A company that is using eprocurement or providing e-procurement service for at lest
3 or more years). The reason for this choice is due to the
recent e-procurements evolution in the business
community. The companies approached for the study were
first contacted via mail and telephone. The company’s
selected for this paper was e-procurement solution provider
from Sweden (A) and from India (C) which qualify under
these criteria; both companies were founded around the
year 2000. Also, both are leading e-procurement service
provider in their respective country. While selecting users
of e-procurement, it was purposeful that the user company
should be related with the service provider company. So, a
banking company (B) was selected for Sweden as company
A provides the e-procurement solution to company B and
company B is a share holder of company A. Further from
India, Steel manufacturing company (D) was selected as
company C provides e-procurement solution to them and
company D also has a share in company C. Another reason
for selecting these companies was due to their involvement
in the B2B sector. In addition, it was purposefully tried to
take not only companies from different countries, but also,
different industry as this widens the scope of the study for a
better understanding of the e-procurement phenomena.
Finally, the people approached in each company were
not strictly based on their job profiles, as in most
companies there is no any particular position or person that
handles e-procurement. Hence, the selection of interviewee
was left on the company. Companies were approached and
the right person was searched after briefing them about the
needs of the interview (For details on methodology please
refer to [26])
All the four companies formed 4 cases that will be
presented in the next section. According to [24], it’s
beneficial to conduct multiple case studies, instead of single
as it gives the opportunity of comparisons. By investigating
similar and contrasting cases, the researchers have the
opportunity to better understand the findings than if they
came from a single case [27]. Data collection of the paper
was done using interview and documentation. Interview
was conducted personally or via telephone with follow-up
e-mails. Websites of each company was used as an
important source for documentation and information.
IV. CASE
STUDIES
A. Findings from Swedish cases (Company A and B)
Cost saving is recognized in accord with the theory
presented by different authors, in company B. High
purchase volume helps in getting better price and higher
savings from supplier. Company A also, supported this
theory, and identified cost saving as the main factor for
companies to adopt e-procurement. Moreover eprocurement assures the suppliers and buyers making
negotiation natural. Company B partially allied with the
theory relating to Process efficiency. It helps in getting
market overview, transparency throughout the company
and reduction in the overall purchasing. They also
associated process efficiency with reduction in numbers of
suppliers i.e. in invoicing and other information from
suppliers. Similar views were shared by company A,
establishing that process efficiency enables better business
control, professionalism in work and clears up other
processes within the company. Further, they suggest time
convenience as a vital benefit, users can utilize their time at
work rather then purchasing.
Regarding better information flow between buyers and
suppliers, company B agreed with the theory completely
whereas, company A partially agreed. They explained that
e-procurement solutions enable end-users to search for
products to create requisitions and to place orders with
supplier. But, the employees\buyers may not always know
the supplier. Thus no direct relationship may come to exist
and information flow might be restricted. Both company A
and B fully approve reduction in maverick spending due to
e-procurement. They acknowledged contract compliance
i.e. purchase only from suppliers with whom they already
have some relationship, which leads to reduced maverick
spending. Similarly regarding streamlined process both
company feel that e-procurement connects employees with
a single process making it smoother, information flow
effortless, easier to handle and the whole process is
streamlined. This leads to automating requisitions,
minimizing data errors, routing all documentation. With
reference to better inventory control, company A agreed
with the theory company B believes it is not the only major
benefit of e-procurement since it deals in indirect material.
Finally, the most important benefit of e-procurement for
company B was cost savings as non-cost savings are rather
intangible. Whereas, company A did acknowledge non-cost
benefits to be not existing and better price to be the main
motivator. It also rates contract compliance and process
savings as important benefits.
Company B partially relates internal risks with the
implementation of e-procurement, as suppliers have shown
interest in integrating e-procurement but found it to be very
expensive to integrate with their existing system. They had
to provide training and educate to their employees on
proper usage of e-procurement. However, they did not have
any problem with the integration and uncertainty of its
current IT solution. For company A, internal risks did not
exist; this was due to technological advancements, training
the employees and other services. They found something
new to add to the theory; identifying other internal risks
like lack of managerial commitment, and need for change
in behavior and management. Company A did not support
the theory of external risks the only visible external risk
were the suppliers not wanting to join the system (mostly a
risk for smaller companies rather then large companies)
while other risks related to the suppliers are taken care of
before any transaction. Companies B, believe there can be
risk while dealing with new suppliers, as they may not be
interested in a marketplace that is expensive. It is seen as
extra burden for suppliers for delivery which might
discourage suppliers; buyers on the other hand may get
confused who to choose from the large supply base.
Technological risks were not of great concerned to both
company A and B as e-procurement technology standard
are common and widely accepted, hence this risk is
obsolete. But, both companies were more or less threatened
by process risks, company B gave high priority to security
which should not be neglected. They have a separate
security and audit department. As the information is vital it
should not be visible to competitors, despite the security,
measures good communication between all players in the
market place is essential. Company A, rated risks linked to
security and control issues very low, solitary related to
operation risks.
Company A, diverges from the theory and according to
them there is a different strategic approach taken by
companies now-a-days. They believe “Wait and see
approach” was quite common one year back in the
industry. But now a different approach is adopted by
companies regarding implementing e-procurement. It is
some were between passive and aggressive strategic like a
“moderate approach”. Companies consider business case or
business analyses before making the decision but
companies are positively implementing e-procurement.
They feel that this transformation is due to change in
company’s overview regarding e-procurement, as it is not
just a new software solution. Risks have significantly
reduced and communication of E-procurement has become
easier than ever before. Company B, followed ‘wait and see
approach’ when they first implemented e-procurement
system. They ran a test pilot with just 25 users and few
suppliers in 2001. And it did not take them long to
understand the benefits associated with e-procurement and
the initial risks conquered. The users got compatible with
the system and within a year they changed their strategy to
aggressive. They widely implemented the solution by June
2002 and added 600 users; across all branches in Sweden.
By Nov 2002, all the employees of company B in Sweden
were able to use e-procurement solution.
Although the current use of e-procurement is for indirect
material, there is a rise in the purchase of direct material.
It can be seen that in near future more transaction of direct
material will be done. The acceptance of e-procurement
solutions has got suppliers more interested to get involved.
Company B supported the theory as their current eprocurement technology is used only for indirect material
due to the needs of their business process.
Company A provides buy-side e-procurement model
hence agreeing to the theory. They explained it is easy to
motivate suppliers, if you have big companies as buyers
(e.g. Ericsson, SEB, Novo Nordisk, and etc). Suppliers
have assurance on the adoption of e-procurement will yield
them better relations and more money. Making it easier to
sell it compare to sell side or trading hubs. Also company
A’s main stakeholder are its customers and all are big
buyers. The model adopted by company B is a buy side
mode and the reason for choosing this specific model is
influenced by need for more specific solution for company
B. Sell side model or trading model is not considered
because both did not satisfy the need of the company’s
procurement needs.
B. Findings from Indian cases (Company C and D)
Both companies C and D, partially concur with the
theory, cost savings is recognized, other related benefits are
volume buying is made easy, more options are available
and negotiation for a suitable price is easily done. Further,
reduction is recognized in fixed cost, man power cost,
variable cost through technological intervention. Company
C added something new to the theory regarding process
efficiency, they stressed on the value of visibility and
transparency across the entire process and knowledge
management as the imperative benefits along with cost
benefits. Company D believes process efficiency leads to
substantial reduction in lead time for purchasing of
materials, simplifying paper work and procedures.
Regarding better relationship between buyer-supplier both
companies agreed and stressed on better buyer-suppliers
relationships, which contributes to maintaining better
relationship, savings from investments and generation of
revenue. This leads to standardization of best practices,
increased responsiveness to customer’s demands and
selling. Maverick spending was a benefit recognized by
both companies, as transactions are made easy and
profitable by using large qualified supplier’s base.
Company D has streamlined the entire purchasing system
and suppliers, by higher utilization of e-procurement in
centralized purchasing. Company C realize benefits like
reducing procurement cycle which streamlined the
inventory or workflow integrating new technology to the
existing process to avoid duplication within the company.
Company C recognized increase in optimal inventory level
as benefit of e-procurement. Company D identifies real
time exchanges through electronic invoicing, lower prices
and better inventory control. The whole process used to
take two months before and can now is done in two hours,
leading to time saving, higher profitability and productivity.
Finally, company C recognized cost saving as the most
beneficial, while for company D acknowledged cost saving,
sales relationship with its customers both internal and
external as most beneficial.
Company C and D both partially agreed with theory,
internal risk relates mostly to the early phases of adopting a
new technology. This could be due to non-acceptance to
change, which makes the scope of the risk very limited.
The vital risk identified is responsiveness to e-procurement,
the need to develop a strategy for adoption and integration
of technologically advance process. It values the adoption,
implementation and training employees for better
integration of technology and improving previous
relationships. Regarding external risks company C did not
identify this risk, according to the interviewee. Eprocurement leads to transparency between buyers and
suppliers, which are accepted by both the parties. This
facilitates a degree of standard and quality for the
organization. Thus any external risk does not exist.
For company D, the decision to adopt is directly related
to investments and suppliers, which is an important
consideration as most of its suppliers are still new to
adoption of e-procurement and situated in remote areas.
Both companies again correlated to the theory regarding
technological risks, as there is lack of acceptance of
technological standards in India, which is still a developing
economy. Hence, here traditional and modern business
coexists. It was agreed that with training employees and
operational flexibility across organization technical
efficiency can be achieved. Also, large unorganized sectors,
lack of infrastructure makes quality and delivery
capabilities a farfetched inspiration. Finally concerning
process risks, is not identified largely by company D as the
roles are defined within the organization. And company C,
acknowledges that process risks may arise during the initial
stages which lead to transparency and visibility that
delegates control all across the organization.
According to company C, companies have moved on
from the early scenario of wait and see and passive
approach. Where not many companies were ready to take
risk, but now they are surer about the e-procurement
solution. Most of them are changing to aggressive
adopters, for those who have already adopted the solution it
is about moving one step forward. Company D’s adoption
strategy was aggressive as they wanted to expand on the
first mover advantage in their industry. They identified the
need to accept new technology and gain competitive edge.
It successfully set company C to acquire resources, save
money and achieve higher efficiency. The adoption of eprocurement within company D started with only one
department and in time was adopted across the
organization. It was a deliberate and strategic attempt to
take on the aggressive strategy rather then passive or wait
and see approach.
Company C mentions that most Indian companies
consider direct material purchasing takes longer cycle and
longer wait before the result can be judged and benefits can
be identified, while with indirect material results can be
viewed immediately. There is a shift in the market towards
direct material, similar to the auto industry. However it is
quite slow due to lack of technological and low acceptance
by buyers and suppliers. The user company D is among the
few companies in India that has implemented eprocurement for both direct and indirect material. Most of
its procurement takes place for direct material (raw material
like steel) but its slowly moving towards indirect material
(MRO materials). This has led to better buyer supplier
relationships and improved long term associations.
According to company C, trading hubs were most widely
used by companies before. But due to diverse market
segmentation, the buyers and suppliers communication
could not be brought on a single platform. Now most
companies are adopting a buy side model which allows the
companies to purchase goods from contracted suppliers,
while the sell side model is not so popular due to the fewer
adoption capacities of the suppliers. Company D adopted
the ‘buy side model’ which complements the needs of the
organisation and better price. In the initial stages trading
hubs where also considered as an option. This was quickly
rejected due to the lack of technical development and
supplier’s willingness to adopt the technology while still
striving to build sustainable competitive advantage.
V. CONCLUSION AND IMPLICATION
The purpose of the article was to provide better
understanding by focusing on the benefits, risks, practices
and strategies and its emerging usage in the current B2B
environment. By conducting an extensive yet not
exhaustive review of previous studies on e-procurement
phenomena, three research questions were formulated.
These research questions were the guidelines for the whole
study and for selecting the methodology used in the study.
By use of case and cross case analysis [27] the findings
were compared with the theory and between the cases.
Conclusion contains the cross case analysis between the
companies. Whereas implication for future research deals
with specific research that can be visualised after this
study.
A. Conclusion
Our research indicates benefits are the drivers for
companies to implement e-procurement solution. Although
the risks are present throughout the process, the benefits
clearly over power them. Cost saving has been identified
by all four companies as the main motivator for them to
implement e-procurement. It is easy to speak about cost
benefits compared to other benefits as its effect can be seen
immediately in companies’ savings. According to the
Swedish firms, process efficiency is not just about less
paper work and fewer mistakes, but reduction of suppliers
used for the procurement process before implementation of
e-procurement solution. It stressed that e-procurement
leads to professionalism in work, better business control
and cleans up the processes within the company.
Researches indicate an agreement between most companies
regarding the benefit of better information flow between
buyers and suppliers. Some of the main points worth
mentioning are increase in number of transactions,
transparency in process, standardization of best practice
and increases in responsiveness to customers. A relation
between better information flow and saving from
investments and generation of revenue were also
acknowledged. A consensus between the companies was
documented regarding the reduced maverick spending.
They confirmed using a recognized supplier for purchasing
products, leads to control and regulation of spending, and
transaction easier and less expensive for company
purchasing. Same trend were recognized in reduction of
maverick spending with benefit from streamlined process.
Some points worth mentioning are: single process makes
the process smoother and effortless information flow,
minimizing data errors, automating requisitions, and
reduction of procurement cycle.
Another related effect can be noticed in integrating new
technology to the existing process is to avoid duplication
within the company. Indian and Swedish companies had
different views regarding inventory level. They recognize
real time exchange helps in reduction of problems like
stock out and delivery problem thus leading to time saving.
But this benefit is not that valuable as it has become an
accepted norm. It is acknowledged that specific benefit of
inventory level is mostly related with companies using eprocurement for direct material purchase. For companies,
that are using e-procurement system for purchasing indirect
material it’s not that beneficial. Cost benefit was mostly
recognized as important and essential benefit of eprocurement. However, company A stressed on contract
compliance and process saving. Similarly, Indian
companies identified sale relationships with both internal
and external customers to be beneficial. Consolidation of
purchasing practices leads to greater discounts and better
service from suppliers.
Our research indicates that, while most companies have
accepted the risks involved in adoption of e-procurement
others have moved forward and have identified additional
risks associated with e-procurement. Regarding internal
risks companies identify the need to provide proper
training at all levels for better understanding and
collaboration across the organization. Investigation of the
Sweden based e-procurement provider enlightens the lack
of managerial commitment constraining the adoption of eprocurement. Hence a need to change the overall behavior
and management is acknowledged. The research
recognized external risks associates with e-procurement,
which mainly constitutes - customers and suppliers. There
are risks of dealing with new customers with no previous
records, lack of integration between the system used by the
suppliers and the companies and connectivity. Adoption of
e-procurement is slow and results are delayed mostly due
to lack of technological standards. A similar view was
shared by the companies in India, but the Swedish
counterparts felt that technological risks are ever present.
They also concluded that in countries like Sweden,
adoption of e-procurement is standard and commonly
accepted. Individual companies differ in their specific way
to deal with risks related to security and control. Based on
the finding, both Sweden and India it can be understood
that these risks are more fundamental during the initial
phases of implementation of e-procurement, but once the
roles get defined it becomes part of a system or process.
Regarding the adoption strategy, it was felt that
companies change their strategic approach to suit their
needs. We conclude that the three different approaches
identified by theory are not necessarily different as one
could starts with an approach and changes it on later stage
to convene its current requirements. Regarding the eprocurement practices adopted by companies, we found
that both direct and indirect materials are purchased from
the e-procurement solution. Regarding e-procurement
practices theory suggests that indirect materials are more
likely purchased by e-procurement solutions. However
there is a rapid change in the market scenario in both
countries towards direct material purchase. The research
indicates that when compared, e-procurement models used
by companies to the theories in all the case studies were
surprisingly similar. Companies recognised all the three
models in the adoption of e-procurement; the buy side
procurement model was mostly implemented. As specific
requirement of the buying organisations are met by this
model compared to other models (e.g. sell side or trading
hubs). Other factors that helps in influencing this decision
are large customer base for suppliers, big players assure
suppliers of better revenue and relations.
From this study we gather the correlation between
companies dealing with e-procurement and how they
identify the benefits, risk and strategies. This area is not
fully developed in literature and possibilities to expand the
research would be motivating. Conversely, we anticipate
that the findings from the study could serve as the base for
constructing a hypothesis, which can be tested and used to
produce generalized results.
B. Implication for future research
Some interesting propositions for future researches to
indulge in the field of e-procurement are summarized
below:
• The dissimilarities regarding e-procurement
amongst companies could be an area for future
research to be undertaken.
• The dissimilarities regarding e-procurement due to
location (country) and its culture can be an
interesting area for further research
• A quantitative study in e-procurement would be
interesting in making the research area border
ACKNOWLEDGEMENT
The authors are grateful to the support and
encouragement from Professors Mats Westerberg and
Professor Tim Foster during the preparation of the
manuscript.
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